How to Create a Digital Coin Business

15 January 2018

Cryptocurrency are now making the headlines literally every day, with fortunes made or lost within hours. How difficult is it to start a cryptocurrency business and what are the basic principles to avoid being on the losing side?

Everyone these days has heard of Bitcoin, a digital coin concept that has resulted in players amassing millions of dollars in a short space of time without the presence of a tangible currency. Anyone can start up a digital coin exchange, provided a few pitfalls are avoided. You just need to follow a few key steps and you are on the way.

1. Decide where it’s best for you to do business. The current hotspots are Japan, Hong Kong, Singapore and Switzerland.

2. Install a transaction history and liquidity on the exchange.

3. Implement best security practices.

4. Provide customer support.

Familiarise yourself with your chosen country’s rules

This sort of business has no geographical boundaries, so it can be either operated from one country or spread through several. Wherever you choose, there will be the need to obtain the necessary license before you can start up a digital coin exchange business and follow a country’s rules regarding the presence of this type of business.

Most governments require any business that’s involved in digital coin exchanges to follow Know Your Customer (KYC) norms. This is when a business goes through the process of verifying its customers’ identities through passports or IDs issued by their governments. You will need to keep records showing how you follow KYC.

Partner with a bank or payment processor

You will need to draw up a partnership with a bank or other payment processor. This is so that payments can be processed using the country’s fiat currency which is the legal tender currency for that country. The best bank to choose is one that has a long history of engagement in fast online processing. Some developing countries might not be quite as go ahead as this, but automated payments can still be done.

Create liquidity in your exchange as follows:

You can initiate trading activity in your own exchange by purchasing and selling between two mock accounts in your exchange.

You can establish an API interface that links your digital coin exchange to an existing exchange.

You could join a network of cryptocurrency exchanges, like Trust-Deposit, which will unite the liquidity of other exchanges in its network meaning better liquidity.

Best security is best for the digital coin business

To prevent theft of your digital coins you will need to have excellent security measures in place. Your customers’ private data should be included in this.

Best ever customer support always a winner

A fast, effective customer support team should be available 24/7 to address customer complaints, approve KYC requests, process the withdrawal and deposit of fiat currency, amongst other things. This draws and keeps customers.

4 key components for your digital exchange

1. The trade engine is the centre of an exchange which:

has order book access;

matches sell/buy orders;

carries out

2. The user interface (UI)

This is the exchange website’s front end and how your traders get to view your trading platform and your website design.
A user interface must:

be able to deposit, withdraw and maintain fiat and digital currencies;

view present order book, previous transactions & balances;

view charts;

place seller and buyer orders;

access the supporting mechanism.

3. The wallet

The wallet is the digital coin daemon, which is run off the exchange’s server. This is the place where the exchange operator’s digital coins and his/her traders are located, which requires maximum security. All exchanges should include what’s called a cold/hot wallet arrangement to spread any potential risks.

This hot wallet acts as a digital coin gateway for the exchange, allowing a customer to transfer digital coins to their external wallet without requiring approval from one of the exchange operators. The hot wallet must have a positive balance to allow for any instant withdrawals.

A cold wallet is where the remainder of your digital coins are held offline. Dividing up the digital coins into the cold/hot wallet arrangement offers the optimum balance between security issues and ease to make instant withdrawals.

4. Admin panel.

This is the business’s intelligence and its management software. It assists the exchange operator to manage and control his/her exchange. Functions should include:

an ability to alter liquidity;

editing the trading and spread fees;

approval of user accounts for trade purposes, following the verifying of KYC or other set requirements;

management of currency markets;

the crediting of fiat deposits, or the debiting of fiat withdrawals as demanded by the users;

addressing support requests initiated by users.

Bitcoins, and beyond?

Bitcoins have seemingly outshined its rivals in terms of investor attention, but cryptocurrency industry is moving fast. Discounting what may happen to nowadays’ most popular cryptocurrencies, there is a sure trend toward the assimilation of the cryptocurrency in the global economy.

Whether linked to the Bitcoin’s success or to the concerns it causes, this trend is now definitely confirmed by several States having announced their intention to address either issues or opportunities arising in connection with cryptocurrencies.

Such States include France, South Korea, Russia, and many more are poised to follow.

Though this will cause faster hotspot changes in the short term, it is only a part of the future external factors that will impact the cryptocurrency industry, and some expects that decentralisation will come to an end through regulations or convergence of services.

Is this a bad omen? While it may be a source of uncertainty, it is also the sign that it is now the best time to enter the market, and to do it by the books, before State actors manage to raise new barriers to entry preventing new players to join the fray and securing the spoil for the established financial industry.